Q.
What is "Opportunity Cost" and explain your understanding of this term in economics.
A.
Opportunity cost is cost of forgoing a possible profit because the same resource is used to earn another profit in the same time period.
Its definition is "the value of the alternative forgone by choosing a particular activity"**, something like a "Trade-Off".
In an example of having a meal on board a plane, choosing to eat plate A is forgoing eating plate B. Thus the opportunity cost is the cost of plate B. In another example, going for TV channel A is forgoing TV channel B if they are shown at the same time. In business, if the same manpower and time is used to perform production A, it is forgoing Production B. And, if the product A makes more money than Product B, the final profit is more than the opportunity cost lost (Product B). However, if the reverse is true, then the business decision is making a loss due to choosing a less profitable venture. However, there may be other reasons such decision is arrived. For example, using of the manpower and time to rescue victim of a disaster.
** Definition from Myers, Danny (2008) Construction Economics A New Approach. 2nd Ed. Faylor & Francis. Page 2.